So what you're saying is the price of $38 was worth it to them in order to save their reputations from going to complete shit from a failed IPO.
Guerilla is simply talking about value at time of purchase, you guys are arguing about future values...
OFFICIAL Facebook IPO Thread
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So what you're saying is the price of $38 was worth it to them in order to save their reputations from going to complete shit from a failed IPO.
Guerilla is simply talking about value at time of purchase, you guys are arguing about future values...
The value at time of purchase is inflated per their revenue and revenue potential in the future. Having a lot of users doesn't make you worth a lot of money.
That is incorrect, the underwriters were not operating as normal market participants. They were initiating price controls to artificially inflate the price. If I put up a pair of old shoes on eBay and tell my wife to buy them for $1,000, that does not make them worth $1,000.
The actual price (or value) is not in line with the market rate right now. We won't know what that value is until they let the stock float freely in the market.
The 100x valuation is based upon growth predictions, though. The whole tech ethos is to focus on growth and then monetisation later. You sacrifice short term profits for exponential growth. You aim to create a massive barrier and become so huge that no one can reasonably take you on. Facebook is virtually there. Google has the best shot at creating a rival social network, but I can't see that happening. G+ will have its place I'm sure, but it'll warp into something with a different purpose to the other social networks we already have (Twitter/FB/LinkedIn primarily).
The reason tech (i.e. web stuff) is different to most traditional businesses is that the costs are so much lower. You couldn't take the same approach to building McDonald's for example, because the costs are just too high. Thus, you'd need to be monetising from the get go to expand. Websites can become absolutely massive in terms of reach and monetisation potential, with relatively speaking minimal costs. You can grow faster by minimising advertising and revenue streams, because those things turn off users. Once you have everything in place, then you can take advantage of the massive userbase you have acquired, and begin to monetise it accordingly, which is a phase that FB is only just starting to enter.
Sure - it's an extra level of risk (they could never find a way to monetise it - but I find that hard to believe when Facebook pretty much has the entire developed world under the age of 35 communicating via it, and engaging with the site several times a day. All they've got to do is find a way to attract users to facebook when they have commercial intent, and bam.). Traditional P/E and such are a crap way to give valuation to a rapidly growing tech company IMO. They become far more useful in mature companies. (P/E would be fair to use when judging a company like Google today, for ex. I'd argue the same thing on Google's IPO day however, that P/E wouldn't be fair for them then, either.)
It's easily possible that 5 years from now, 1/3 of the world's population could be using Facebook, that's 2 billion people.
Those 2 billion generating $10 in profit each year for FB is enough to smash their $100bn valuation to pieces. They just need to find a better way to channel people with commercial intent to advertisers, which I'm sure is something they're working on. (Searching for products including recommendations from your friends etc and their past purchasing habits.. all sorts of things become possible).
dchuk, you make my head hurt 
Things are worth whatever people are currently paying for them. It doesn't matter if everybody is crazy or not in the right mind.
People on Wall Street like growth. So if they see a company is growing quickly, they are willing to pay many times what they are worth. Because there are so many people that think this way, the valuation of companies that are growing quickly can have very high p/e ratios.
I do agree that Facebook is overvalued though, but it's currently worth $38.
Things are worth whatever people are currently paying for them. It doesn't matter if everybody is crazy or not in the right mind.
People on Wall Street like growth. So if they see a company is growing quickly, they are willing to pay many times what they are worth. Because there are so many people that think this way, the valuation of companies that are growing quickly can have very high p/e ratios.
I do agree that Facebook is overvalued though, but it's currently worth $38.
LOL. Speculators, short sellers, pumpers etc are all features of the market.
The only way it would not be a market, is if there was state intervention into the price.
How were they controlling the price of the stock?
I'm pretty sure they were basically just buying it. Doing this has significant costs and risks. It's not like they put some kind of rule into the stock market where no matter what you can't sell for less then $38. They were in there buying it to keep the price up. This costs them a lot of money and has a lot of risks. The same exact way you could go in and buy it for 39 in front of them if you wanted to.
dchuk, you make my head hurt
Things are worth whatever people are currently paying for them. It doesn't matter if everybody is crazy or not in the right mind.
People on Wall Street like growth. So if they see a company is growing quickly, they are willing to pay many times what they are worth. Because there are so many people that think this way, the valuation of companies that are growing quickly can have very high p/e ratios.
I do agree that Facebook is overvalued though, but it's currently worth $38.
http://www.nytimes.com/2005/07/18/business/18cnd-newscorp.html
http://news.cnet.com/8301-17939_109-20075451-2/myspace-sells-to-specific-media-for-$35-million/
Users are worth whatever you make from them. A user itself is not inherently worth anything. Facebook currently makes about a buck a user.
There are very few examples of major growth (in terms of users) companies doing anything but a big exit (which is profitable for the shareholders, sure, but is not indicative of true business success). Few if any ever actually make a profit at a level that gets anywhere near whatever they are valued at.
EDIT: I meant to say "There are very few examples of major growth SOCIAL NETWORKS"...I accidentally a few words
Speculators, short sellers and pumpers are indeed all part of the market, that's correct. Underwriters are not. See my example above about having my wife buy my dirty old shoes for $1,000.
From an individual standpoint the stock is worth different amounts to different people. Some will only buy if it's at $36, some at $38 and some idiots would buy it if it was priced at $100 - so for individual actors any item is worth whatever someone is willing to pay for it. But when we're talking about free market value we have to consider the aggregate of all of these to determine a fair market value. We don't have that yet due to the price controls imposed by the underwriters.
That's irrelevant to what people are paying (the PRICE) of the stock.
Please, please, please take the time to learn some basic economics.
I'm not arguing about the price people paid, I'm arguing that the valuation is wrong (and flawed).
No, you didn't. Your $1,000 example was also incorrect.
Learn economics. You have been making shitposts like this for years now, and it's beyond tired.
If the valuation is wrong, why are people paying that price? If they wouldn't buy at $38, you would be right. But you're not.
You assume there is some objective value, and values are not objective. Pretty much everyone in economics accepts this, even Marxist economics professors sorta accept it.
You guys are arguing a position that has been refuted for almost 150 years, and which no one has seriously believed in maybe 100 years. That's how bad your argument is.
Look, I don't know how else to explain to you guys what should be patently obvious, and is to most people who understand the most basic workings of a market economy.
also, social networking users are probably some of the lowest value users on the internet. Maybe second to instant messenger users.
Unless they launch their content network competitor next week, today was just all a bunch of speculators giving each other handies.
Unless they launch their content network competitor next week, today was just all a bunch of speculators giving each other handies.
I think the tech world (and the notion of growth first, monetize later, which is quite new in terms of history) has fucked up quite a few sound principles in both economics and business. No company 50 years ago could aim to grow first and then figure out how to make money 5+ years later.
Let's say I have $9 trillion and I buy every single share of LuLuLemon because I really like the name of the company. Then I decide that a fair price per share is $800. I don't care what the company does or how much money it makes or loses. If you want to own LuLuLemon, the price is $800/share. LuLuLemon is now worth exactly $800/share. You don't like that? Ok, don't buy it.
If you find enough people, willing to pay that price, then it's worth exactly that much.
When people start realising that it's undervalued/overvalued the market will adjust.
How difficult is that to understand?